Valuation / Recommendation

We have a SUBSCRIBE recommendation on YX Precious Metals Bhd with a target price of RM0.34 based on FY23F EPS of 2.4 sen and a PE of 14.3x which is a 40% discount to the industrial sector 5-year average PE. We like the stock for its attractive expansion plans, and cheap valuations. The target price represents a potential return of 21.4% over the IPO price.

Investment Insights

One-stop supply centre for gold jewellery. stock keeping units (SKUs), better positioned to meet varying customer demands. YXG also offers customers the option to purchase gold jewellery in small quantities with a mix of different designs, offering convenience for small retailers. This enables the company to cultivate customer loyalty, retain an established customer base and attract new customers. As of 2021, the company managed to secure a market share of 6.1% and 1.8% from the jewellery wholesale and manufacturing industry in Malaysia.

Upgrading and expansion of facilities. The company intends to purchase 2 robotic arms, 2 industrial wax 3D printers, 1 chain cutting machine, and 1 5-axis CNC cutting machine over the next 24 months. The additional machinery and equipment will improve the company’s production efficiency, reduce wastage of materials, and reduce production time.

The company also plans to expand the range of in-house design and manufacturing of hollow gold jewellery. With the new equipment and machinery, this enables YXPM to better serve customers demands, mainly jewellery retailers who intend to target a wider cross section end-consumer.

Diversified market reach and strong customer base. The company has approximately 315 customers as of FYE 2021, spanning across markets in Malaysia, and export markets such as Singapore, Germany, Myanmar, and Hong Kong. In FYE 2021, approximately 98.0% or 310 customers are resellers, 2% or 5 customers are jewellery manufacturers, and 79% or 250 customers have a long- standing relationship with YXPM for more than 6 years.

Experienced management team. The company has an experienced management team spearheaded by MD Ng Sheau Chyn who has more than 30 years of experience in the jewellery industry.

Risk factors. (1) Fluctuation in global gold prices.

Source: Mercury Securities Research - 1 Jun 2022